With economic uncertainty rising, many investors are looking for defensive plays to weather a potential recession. One surprising group of stocks that often thrive during downturns is “sin stocks”—companies involved in alcohol, tobacco, gambling, and other controversial industries.

But is now the time to invest in them? In this article, we’ll explore:

1. What are major sin stocks?
2. How sin stocks perform in recessions
3. Why they get picked up during downturns
4. Who invests in them (institutional investors’ perspective)
5. Do sin stocks contradict today’s ESG-focused investing? Or is the perception changing?

1. What Are Major Sin Stocks?

Sin stocks are companies that operate in industries often considered unethical or controversial. However, these industries tend to be highly profitable and recession-resistant because consumer demand remains stable.

Key Categories of Sin Stocks:

Alcohol & Tobacco:

• Altria (MO): Approximately 90% total return over the past 10 years, driven by consistent dividend payouts.​
• British American Tobacco (BTI): Around 70% total return, influenced by regulatory challenges and shifting consumer preferences.​
• Philip Morris International (PM): Approximately 85% total return, supported by a strong international presence and brand recognition.​
• Constellation Brands (STZ): Around 150% total return, fueled by a diversified beverage portfolio and strategic acquisitions.​
• Diageo (DEO): Approximately 95% total return, bolstered by its premium brands and global reach.​

Gambling & Casinos:

• Las Vegas Sands (LVS): Approximately 60% total return, with performance affected by regulatory changes and economic fluctuations.​
• MGM Resorts (MGM): Around 75% total return, aided by diversification into online gaming and sports betting.​
• Caesars Entertainment (CZR): Approximately 50% total return, following restructuring and expansion efforts post-2017 bankruptcy.​
• DraftKings (DKNG): Since its public listing in 2020, DraftKings has achieved around a 120% total return, capitalizing on the expanding online sports betting market.​

Cannabis:

• Tilray Brands (TLRY): Highly volatile, with an approximate 30% decline over the past decade, reflecting the nascent and rapidly changing cannabis industry.​
• Canopy Growth (CGC): Similar to Tilray, Canopy Growth has experienced sharp fluctuations, with an approximate 25% decline over the past decade, closely tied to regulatory developments and market dynamics in the cannabis sector.​

Defense & Weapons:

• Lockheed Martin (LMT): Approximately 200% total return over the past decade, driven by consistent defense contracts and a robust order backlog.​
• Northrop Grumman (NOC): Around 180% total return, benefiting from involvement in various defense and aerospace projects.​
• Raytheon Technologies (RTX): Following the merger of Raytheon Company and United Technologies in 2020, RTX has shown solid performance, with an approximate 140% total return, supported by its diversified aerospace and defense portfolio.​

Please note that these figures are approximate and based on historical performance up to March 23, 2025. Past performance does not guarantee future results. For precise and up-to-date information, consulting financial databases such as Bloomberg, Morningstar, or S&P Capital IQ is recommended.

2. Recession and Sin Stocks: Why They Stay Resilient

Historically, sin stocks outperform during economic downturns. Why? Because people tend to maintain—or even increase—consumption of alcohol, tobacco, and gambling when times get tough.

Recession-Proof Revenue Streams:

1. Tobacco & Alcohol:
   • Addictive Products with Brand Loyalty: Products like tobacco and alcohol have a unique characteristic in that they are often addictive, and consumers continue to purchase them regardless of economic conditions. This creates steady demand. Brands like Altria (MO) (with Marlboro) and Diageo (DEO) (with Johnnie Walker) benefit from strong brand loyalty. Even in economic downturns, these products are still in demand, albeit with some minor shifts in consumer behavior (e.g., consumers might trade down to cheaper alternatives or reduce consumption slightly). Historically, these sectors show relatively stable performance during recessions, which is why they are considered defensive stocks.
     • Example: Philip Morris International (PM), known for Marlboro and its growing portfolio of reduced-risk products, saw its performance largely unaffected during economic turmoil like the 2008 crisis.
2. Gambling:
   • Escapism During Economic Stress: During economic downturns, many consumers seek escape through entertainment, and gambling becomes a coping mechanism. In particular, both physical casinos and online gambling platforms see a surge in demand when people are looking for an escape from the stresses of financial uncertainty.
     • Casinos like MGM Resorts (MGM) and online gambling companies like DraftKings (DKNG) tend to perform better than other sectors during recessions. While luxury or non-essential spending decreases, the desire for gambling and other escapist activities (including online betting) often increases during times of financial hardship. The 2008 Financial Crisis did not deeply affect the gambling industry’s long-term growth, and some sectors even saw increased traffic as people looked to take risks in search of financial gain.
3. Defense Stocks:
   • Steady Military Budgets: Military budgets tend to remain consistent, even during recessions, as national security is often prioritized by governments regardless of the economic climate. This ensures steady demand for defense-related products and services.
     • Companies like Lockheed Martin (LMT), Raytheon Technologies (RTX), and Northrop Grumman (NOC) provide defense technologies that are essential for national defense. In the 2008 Financial Crisis, military spending was largely unaffected, and many defense contractors saw stable revenue streams due to long-term government contracts. Defense spending is often seen as a “recession-proof” investment because governments typically do not reduce defense budgets during recessions.

Example During the 2008 Financial Crisis:

Raytheon (RTX), before its merger with United Technologies, also showed strength as its contracts with the U.S. military and NATO countries continued to provide revenue.

Tobacco & Alcohol: During the 2008 financial crisis, stocks like Altria (MO) and Philip Morris International (PM) showed resilience due to their steady consumer demand. Despite the global economic downturn, these companies continued to perform well due to the non-cyclical nature of their products.

Altria (MO): Even in tough economic times, Altria’s stock held up relatively well, driven by strong dividend payouts and a loyal customer base.

Philip Morris (PM): Similarly, Philip Morris demonstrated strength through its international market reach and resilient product line (Marlboro), which remained in demand.

Gambling: The recession in 2008 did not significantly hurt major casino stocks like MGM Resorts (MGM), which experienced a slight dip but quickly recovered as consumer demand for escapism, particularly in Las Vegas and other resort destinations, remained steady. Online gambling companies like DraftKings (DKNG), though not publicly traded at that time, would later capitalize on the growing demand for digital entertainment.

Defense Stocks: Defense contractors like Lockheed Martin (LMT) and Northrop Grumman (NOC) saw little impact during the 2008 financial crisis. In fact, many defense companies had government contracts that were relatively unaffected by the economic downturn, ensuring continued revenue streams.

Lockheed Martin (LMT) continued to deliver strong returns, fueled by its involvement in crucial defense and aerospace projects, with military budgets holding steady.

3. Why Do Investors Pick Sin Stocks During a Recession?

Even in economic downturns, people still drink, smoke, gamble, and governments still spend on defense. This makes sin stocks attractive for investors looking for stability and dividends.

Key Reasons Sin Stocks Get Picked Up:

• Strong Cash Flow & Dividends – Sin stocks generate consistent profits and pay high dividends, which is attractive when markets are volatile.
• Non-Cyclical Demand – People don’t stop smoking or drinking because of a recession. In fact, some habits increase during stress.
• Pricing Power – These industries can pass costs to consumers without significant demand drops.

Case Study: Altria (MO) During the 2008 Crash

• S&P 500 dropped 37% in 2008.
• Altria (MO) only fell 7% and recovered faster than most stocks.
• Its dividend yield remained strong, keeping investors happy.

4. Who Invests in Sin Stocks? Institutional Investors’ Perspective

Despite ethical concerns, some of the world’s largest institutional investors own sin stocks because they generate steady returns.

Institutional Investor	Notable Sin Stock Holdings
Vanguard Group	Altria (MO), British American Tobacco (BTI), Lockheed Martin (LMT)
BlackRock	Philip Morris (PM), Diageo (DEO), Las Vegas Sands (LVS)
State Street	MGM Resorts (MGM), Raytheon (RTX)
Warren Buffett’s Berkshire Hathaway	Had past stakes in alcohol and gambling stocks

While ESG-focused funds tend to avoid sin stocks, traditional income funds, hedge funds, and value investors often hold them for their high dividends and recession resistance.

5. Are Sin Stocks Really Against ESG Investing? Or Is Perception Changing?

The ESG Dilemma: Ethics vs. Returns

In recent years, ESG (Environmental, Social, Governance) investing has pushed funds away from sin stocks. However, some investors argue that these industries are evolving and adapting to ESG trends.

• Tobacco companies are shifting to smokeless nicotine and vaping.
• Alcohol companies are investing in low-alcohol and non-alcoholic beverages.
• Casinos & gambling companies are implementing responsible gaming initiatives.
• Defense companies argue that national security is an ethical necessity.

What This Means for Investors:

• ESG funds might avoid sin stocks.
• Traditional dividend and value investors embrace them for their stable cash flow.
• Some investors argue that modernization of these industries makes them more ESG-compliant over time.

Final Thoughts: Should You Invest in Sin Stocks Before a Recession?

If you’re looking for defensive, recession-resistant investments, sin stocks might be a good addition to your portfolio.

✔ Pros:

• Stable demand
• High dividends
• Strong cash flow

✖ Cons:

• Ethical concerns
• ESG avoidance
• Potential regulations

For investors who prioritize financial performance over ESG factors, sin stocks could provide a hedge against economic downturns. The question is: Are you willing to bet on them?

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Disclaimer: This blog article is for informational purposes only and should not be considered financial advice. Everyone’s financial situation is unique. Always consult with a qualified financial advisor or planner to assess your individual circumstances before making financial decisions.